May 9, 2019

Higher wages mean more efficiency for Walmart

In Walmart’s first social responsibility report, released this week, the company outlined its commitment to sustainable growth and reported a few key figures, including employee compensations. Wages for Walmart’s average employee are growing, according to the report. The retail giant is also investing in training and education programs.

Hyunseob Kim studies corporate finance and labor economics at Cornell University’s Johnson Graduate School of Management, where he focuses on the effects of corporate governance and investment on wages and productivity. Kim says that Walmart is responding to an increasingly tight labor market.


Kim says:

“A couple of factors seem to drive these moves by Walmart. First, the labor market in the U.S. has become increasingly tight in the past few years. ‘Labor market tightness’ is a term that both economists and policy makers use to describe how many job offers are made relative to how many jobs go away.

“Companies usually respond to increasing labor market tightness by offering higher wages, more generous benefits, such as training and health care, which is exactly what Walmart is doing. Secondly, paying higher wages (and benefits) can actually be ‘efficient’ for companies like Walmart as well, especially in the medium to long run, as they encourage better employees to stay with the company (that is, less turnover), and improve employee morale, thereby increasing their productivity. This is what economists call efficiency wages.”

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